Part 8/12:
Central banks influence credit availability by adjusting interest rates and controlling the money supply. During inflation risk, they tighten monetary policy; when growth stalls, they loosen policy by printing money—often purchasing government debt (quantitative easing).
Governments can stimulate the economy through increased spending, but this effort is limited if tax revenues decline due to shrinking income and rising unemployment. During crises, governments may resort to deficit spending and money printing to inflate away debt, which introduces risks of hyperinflation if not managed carefully.
The Interplay of Long and Short Cycles
Understanding the interaction between short-term credit cycles and longer debt cycles is crucial: